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The Information & Communications Technology Industry. The ICT Charter: Principles which address the full range of BEE requirements, including the equity Issue for Multinationals. Andrew Jackson & Ken Robinson - September 16/17, 2003. Introduction.
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The Information & Communications Technology Industry The ICT Charter: Principles which address the full range of BEE requirements, including the equity Issue for Multinationals Andrew Jackson & Ken Robinson - September 16/17, 2003
Introduction • This presentation defines principles for the ICT Industry Empowerment Charter • Facilitated • as a service to economic & social development in SA • by Accenture, Cisco, Dell, EDS, HP, IBM, InterSystems, Microsoft, Novell, Oracle, Sun Microsystems, Veritas, & others (to be confirmed) • Many pending formal approval by global governance • Objective • to provide input to a comprehensive consensus process • to achieve BEE in the industry
10. Compliance recognised in public sector 1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Based on DTI “Strategy” document • Uses Code of Practice (“Scorecard”) approach • Designed to achieve Broad Based BEE
1. Aligned to DTI Scorecard 9. Auditable compliance 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Major BEE Challenge is ICT skills development • To be recognised in skills & residual components of Scorecard 10. Compliance recognised in public sector 2. Challenge: ICT Skills
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Contribution of 100% foreign owned companies: • Support global competitiveness • Enhanced competition & choice • Gateway to Africa • Employee skills transfer • Performance guarantees 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Major BEE challenges in 100% subsidiary policy • Governance • Organisation • Intellectual capital • Foreign shareholder pressure • Employee share schemes 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Recognise Black Equity Objectives • Control over resources • Reinvest in SA • Share in wealth • Meaningful black management positions 10. Compliance recognised in public sector • Recognise challenges • Financing • Tradeability • Quoted share free float
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Equity Equivalents to achieve objectives of Black equity through: • Investment in BEE Co’s • New capital in SA • Retained dividends • Foreign sourced revenues • Black share of consortium revenues • Black employee shares • With Black board members 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Challenge in Enterprise Development • Product co. knowledge capital builds channels • Service co. knowledge capital builds competitors • Propose reassign target score 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 3. Recognise foreign company contribution 8. Achieve BEE over 10 years 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Use all DTI BEE components • Phased in over 10 years • “Residual” linked to skills development 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 2. Challenge: ICT Skills 9. Auditable compliance 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Govt. to confirm Charter • Approved Industry Associations to interpret • Statutory auditor’s certificate 10. Compliance recognised in public sector
1. Aligned to DTI Scorecard 10. Compliance recognised in public sector 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Compliance recognition • Legislation provides for equal Charter status • Only BEE entry requirement in public sector procurement • Reciprocity between charters
The Black Equity Imperative • Strategy Statement • “The process of BEE must result in an increase in the ownership and control of the economy by black persons.” • What are the Objectives of Direct Empowerment (black equity)? • For appropriate control over allocation of resources • To reinvest in SA • To share in wealth creation & profits • To support meaningful positions for black management • Charter Principle • Contribute to equity through an “Equity equivalent” (possible without selling equity)
Equity Equivalents • Cost of Accommodation assumption • The sale of equity to black investors would entail a cost to the company which can be valued. • Cost of accommodation at 20% of the equity value transferred to black investors, similar to the Khulisa share offer by Telkom in 2003. • Equity Equivalents assumption: • The four Objectives of Direct Empowerment can be achieved through “Equity Equivalents” . • Equity Equivalents can be valued. • Then value of Equity Equivalents can be compared to the cost of a sale of equity .
Equivalent Value • Value of Equity Equivalents • = Cost of accommodation • = 20% x Equity % x Value of Co. • Company value (applicable to any company) as • EITHER the capitalization on the stock exchange • OR the parent company “Price to Turnover ratio” applied to the turnover of the local subsidiary • OR a hybrid measure equal to net assets plus turnover • “net assets” is a measure of the value of real assets • turnover is a measure of the value of goodwill and intangibles • OR assessed by a qualified independent valuer
10. Compliance recognised in public sector 1. Aligned to DTI Scorecard 9. Auditable compliance 2. Challenge: ICT Skills 8. Achieve BEE over 10 years 3. Recognise foreign company contribution 4. Challenge: 100% subsidiary policy 7. Challenge: Enterprise Development for Service Co’s 6. Comply through Equity Equivalents 5. Recognise Black equity imperative Principles • Our Group offers these principles to the Indaba • in good faith • as an input to future consensus on the ICT Charter • By: • Accenture, Cisco, Dell, EDS, HP, IBM, InterSystems, Microsoft, Novell, Oracle, Sun Microsystems, Veritas, • & others (to be confirmed)